On December 3, 2013, in a landmark decision, the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”) in D.R. Horton, Inc. v. National Labor Relations Boardrejected the argument that the National Labor Relations Act (“NLRA”) banned class and collective action waivers in employment arbitration agreements.  This decision overturned the National Labor Relations Board’s (“NLRB”) highly publicized, and highly controversial, D.R. Horton decision.  In doing so, the Fifth Circuit paved the way for employers to reconsider prior policies and include such waivers in their arbitration agreements with employees.

The Fifth Circuit noted that it was following the lead of the Second, Eighth and Ninth Circuits which "suggested or expressly stated" that they would not follow the NLRB's rationale in D.R. Horton.  With that in mind, the Fifth Circuit held that D.R. Horton's arbitration agreement must be enforced according to its terms. 

In reaching these conclusions, the Fifth Circuit agreed with “numerous courts” that have concluded that there “is no substantive right to proceed collectively under the FLSA,” which was directly at issue in the underlying dispute between D.R. Horton and its employees, or under “various [other] employment-related statutory frameworks.”  It also noted that the NLRA was enacted well before the enactment of the class action procedures of Federal Rule of Civil Procedure 23 or the collective action provisions of the FLSA.  That is, the Fifth Circuit was not persuaded that there was an “inherent conflict” between the NLRA and the FAA when the NLRA was initially enacted in 1935—and later reenacted in 1947—before the class or collective action procedures even existed.  In partially overturning the NLRB’s decision in D.R. Horton, the Fifth Circuit first noted that while the NLRB is given deference when it interprets a statute under its purview, “[d]eference to the Board ‘cannot be allowed to slip into a judicial inertia which results in the unauthorized assumption . . . of major policy decisions properly made by Congress.’”  Specifically, arbitration agreements are enforced according to their terms under the Federal Arbitration Act (“FAA”), unless the FAA’s “savings clause” invalidates the arbitration agreement or a “contrary congressional command” precludes the application of the FAA.  The Fifth Circuit found that neither of these two exceptions applied.

In a separate issue, the Fifth Circuit enforced the NLRB’s order to the extent it held that the language of D.R. Horton’s arbitration agreement violated the NLRA.  With respect to that issue, the Fifth Circuit noted that the language of D.R. Horton’s arbitration agreement could be “misconstrued” as prohibiting an employee’s filing of an unfair labor practice charge.  For example, the Fifth Circuit specifically found that the acknowledgment in the arbitration agreement could be misconstrued to the extent it stated that the employee “knowingly and voluntarily waiv[es] the right to file a lawsuit or other civil proceeding relating to Employee’s employment with [D.R. Horton] as well as the right to resolve employment-related disputes in a proceeding before a judge or jury.”  That is, arbitration agreements cannot prohibit the filing of unfair labor practice charges with the NLRB.  And even if the arbitration agreement does not expressly prohibit such filings, it may still violate the NLRA if it can be “reasonably constru[ed]” to do so. 

In light of this ruling, employers in Texas should reevaluate and reconsider their arbitration agreements or arbitration policies.  Specifically, because the Fifth Circuit has upheld class and collective action waivers by overturning the NLRB’s decision in D.R. Horton, employers should consider whether to adopt such waivers in their existing agreements or include them in agreements they plan to use in the future.  Employers should likewise consider how to tweak existing arbitration agreements or revise arbitration agreements for future use by ensuring that the language cannot be misconstrued as a prohibition on the filing of unfair labor practice charges with the NLRB.  In sum, the Fifth Circuit’s opinion in D.R. Horton creates a path for employers to follow in drafting and implementing their arbitration agreements.”